More data out this week, this time for US house prices and sales, helps provide clarity to the housing starts data also just released (details here: https://madisonsreport.com/2019/02/27/us-housing-starts-dec-and-full-year-2018/). US housing prices recorded their slowest growth in four years during 2018, signalling that this year may be a trying time for the real estate industry.
However, as Madison’s said in our previous piece, it all depends on how you look at the data:
US House Price: December 2018
The S&P CoreLogic Case-Shiller National Home Price Index, released Tuesday, which tracks average home prices in cities across the country, rose +4.7% by the end of December, down from +6% the previous year — the slowest growth margin since 2014, according to The Wall Street Journal.
US Existing Home Sales: January 2019
Meanwhile, US sales of existing homes fell -1.2% in January to their worst pace in more than three years, as persistent affordability problems have put a harsh chill in the real estate market. The National Association of Realtors said February 21 that sales of existing homes were a seasonally adjusted annual rate of 4.94 million last month, the slowest sales rate since November 2015. During the past 12 months, sales have plunged -8.5%. Properties stayed on the market for an average of 49 days, up from 42 a year ago, causing inventories to rise. The number of homes for sale has risen to 1.59 million from 1.52 million a year ago, yet inventories are still tight compared to historic averages.
The median sales price in January was US$247,500, a slight increase of +2.8% from last year. After eclipsing wage gains for several years, home prices in this report are now increasing at a slower rate than average hourly earnings. — National Association of Realtors
US existing home sales fall sharply to 3-year low
- US home sales fell in January to their lowest level in more than three years and house prices rose only modestly.
- The National Association of Realtors said on Thursday existing home sales dropped 1.2 percent to a seasonally adjusted annual rate of 4.94 million units last month.
- That was the lowest level since November 2015 and well below analysts’ expectations of a rate of 5.0 million units. — Reuters
US Home Builder Share Price Reaction: 1Q 2019
Homebuilder stocks ITB, -0.76% , which have roared higher this year in anticipation of a coming rebound in housing, slid Tuesday following the release of a dismal report on new construction. Shares of LGI Homes, Inc. LGIH, +0.63% , which are up nearly 30% in the year to date, fell nearly 3% Tuesday. KB Home KBH, -0.54% ’s stock, up more than 22% for the year, also declined. — MarketWatch
- ALSO: Madison’s Lumber Prices, weekly, are a good forecast indicator of US home builder’s current lumber buying activity ——> DETAILS
US Pending Home Sales: January 2019
Yet elsewhere, the latest National Association of Realtor’s pending home-sales index, released Wednesday, which tracks home contract signings, registered at a reading of 103.2 in January after it touched a nearly five-year low in December. This measure of pending home-sales jumped +4.6% in January yet sales were -2.3% lower than a year ago, making January the 13th straight month of year-over-year declines.
Contract signings to purchase previously owned US homes rose by more than forecast in January, snapping a six-month streak of declines and suggesting lower mortgage rates along with a strong job market are helping stabilize demand.
US Pending Home Sales Key Insights: Bloomberg
- The improvement signals buyers are returning to the market to take advantage of borrowing costs that have declined from an eight-year high in November, while the end of the partial government shutdown in late January may be encouraging buyers who were otherwise hesitant.
- The data also are in line with a jump in mortgage applications in January, and the Federal Reserve’s decision to be patient on interest-rate hikes may help sustain demand. US employers in January also added jobs at the fastest rate in almost a year, supporting demand for major purchases such as homes.
- Pending-home sales are regarded by economists as a leading indicator because they track contract signings; purchases of existing homes are tabulated when deals close, typically a month or two later.
- Contracts rose from the prior month in all four regions, led by an +8.9% surge in the South and a +2.8% rise in the Midwest.
Home Depot Financial Report: 4Q, FY 2018
An exact example of what Madison’s means in stating that North America construction framing dimension softwood lumber prices are an excellent forward indicator for US home building activity; in 4Q, Home Depot, out of Atlanta, GA, fell short on profit, revenue and same-stores sales as rising real estate prices cast a chill over US home sales, according to it’s latest financial filing Wednesday.
The company does not expect its comparable-store sales growth, a key gauge of health in the retail industry, will be as strong this year as it was in 2018.
In the US alone, same-store sales increased +3.7%.
- ALSO: Madison’s Lumber Prices, weekly, are a good forecast indicator of US home builder’s current lumber buying activity ——> DETAILS
Home Depot has been steady in delivering outsized profits and revenue quarter after quarter and the company is eying comparable sales growth of +5.0% in fiscal 2019. That’s better than the 4.3 percent increase that Wall Street analysts had been expecting, but it’s not as strong as the 5.2 percent increase seen in 2018.
Comparable-store sales are a key indicator of a retailer’s health because it excludes volatility from stores that were recently opened or closed.